Question

Alternative Inventory Methods

Park Company's perpetual inventory records indicate the following transactions in the month of June:

	Units	Cost/Unit
Inventory, June 1	200	$3.20
Purchases:
June 3	200	3.50
June 17	250	3.60
June 24	300	3.65
Sales:
June 6	300
June 21	200
June 27	150

Required:

1.	Compute the cost of goods sold for June and the inventory at the end of June using each of the following cost flow assumptions: If required, round your answers to the nearest dollar.

1. FIFO

   Cost of Goods Sold	$  fill in the blank 1
   Ending Inventory	$  fill in the blank 2

2. LIFO (Round your intermediate calculations and final answers to the nearest cent.)

   Cost of Goods Sold	$  fill in the blank 3
   Ending Inventory	$  fill in the blank 4

3. Average cost (In your computations, round unit costs to 3 decimal places and other amounts to the nearest dollar.)

   Cost of Goods Sold	$  fill in the blank 5
   Ending Inventory	$  fill in the blank 6

2.	Why are the cost of goods sold and ending inventory amounts different for each of the three methods?

3.	produces the most realistic amount for net income because it
	produces the most realistic amount for ending inventory because it

4.	If Park uses IFRS, which of the previous alternatives would be acceptable and why?

If Park Company uses IFRS, it may report its inventory under  . It may not use   under IFRS because it is not consistent with any presumed physical flow of inventory. Also,   is not allowed for tax purposes in most other countries, so there is no tax incentive for a company to use  . Note that companies that use IFRS and have rising inventory costs will report a higher income because they include holding gains in income.

Answer 1